VHS NETWORK INC/CA
Filed on Apr 30 2001
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary
The information in this section should be read together with the financial statements that are included elsewhere in this filing.
Going Concern
VHSN is in the development stage and has generated virtually no revenues and has not attained profitability. Its continued existence and its ability to continue as a going concern are dependent upon its ability to obtain additional capital to fund its operations.
Goals and Objectives
VHSN's goals and objectives are centered on the ability to identify technologies and market opportunities in the United States, Canada and abroad in Internet and interactive media e-commerce and smartCARD loyalty marketing. To achieve its goals, VHSN is developing its supplier base and its web site, www.china-emall.com, so that it will be in a position to attract purchasing and revenues. It is at the same time investigating companies from which it can acquire technology with proven financial performance, where joint ventures or acquisitions may also be possible.
Cash Requirements
The issuer will need to raise additional funds in the next 12 months to satisfy its cash requirements. VHSN intends to raise additional funds and pursue acquisitions with revenue potential.
Employees
VHSN may experience significant changes in the number of employees in the next 12 months.
Results of Operations
Results of years ended December 31, 2000 and December 31, 1999 Revenues for both years ended December 31, 2000 and December 31, 1999 were $0. Operating Expenses increased from $525,377 in 1999 to $871,258 in 2000, largely due to an increase in Agency Fees, General and Administration Fees and Professional Fees. Legal and accounting fees increased substantially in 2000 in connection with VHSN becoming a reporting company.
During the year ended December 31, 2000, VHSN has continued to develop its web site www.china-emall.com. In August, 2000 VHSN and G.C. Consulting and Investment Corp. decided that it was in VHSN's best interest in order to conserve cash on hand, to terminate the consulting agreement which provided for the services of Dr. Gang Chai. It was determined that the services of Dr. Chai were not required on a full time basis however both parties agreed that an arrangement would be reached to compensate Dr. Chai for his services that may be required from time to time by VHSN. Dr. Gang remains a director of VHSN.
Liquidity and Capital Resources
VHSN achieved no revenues from operations in 2000 or 1999. During 2000 VHSN received an aggregate of approximately $1,165,000 from investors through the sale of common shares made pursuant to offerings exempt from registration including the exercise of outstanding warrants.
Revenues commenced in the first quarter of 2001 and VHSN expects revenues to exceed $1,500,000 in the next 12 months.
Changes in Financial Position
During 2000 VHSN's total assets increased from $208,306 to $241,117. In April, 2000 VHSN acquired all the issued and outstanding common shares of China eMall an e-commerce company. The China eMall acquisition was substantively an asset acquisition (i.e., domain name and a business plan) rather than a business combination. China eMall had an absence of historical revenues or significant operating expenses and no tangible assets or liabilities. Intangible assets of China eMall consisted of capitalized web-site development costs, which had a book value of $24,000.
During 2000 total liabilities decreased from $2,169,235 to $742,677 which is largely due to a decrease in a note payable to Groupmark Canada Limited pursuant to the management services agreement between Groupmark and VHSN. Amounts due to Groupmark pursuant to this management services agreement and other borrowings as of December 31, 2000 and 1999 were $332,027 and $1,645,868 respectively. VHSN converted $865,868 of the amounts due to Groupmark into 2,500,000 common shares of VHSN and also made cash payments of $597,973.
The reserve for loss contingencies for the period ended December 31, 2000 is for potential payroll tax liabilities relating to employees of Video Home Shopping, Inc., (a Tennessee company that was acquired by VHSN in December, 1996) and for other outstanding claims. It is not a general liability reserve. There is no statute of limitations with respect to this potential liability.
The number of issued common shares of VHSN increased from 10,929,435 on December 31, 1999 to 19,560,268 on December 31, 2000. Shareholders' equity increased from ($1,960,929) to ($501,560) during 2000.
ITEM 11. SECURITIY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Directors and Officers
The following table sets forth certain information regarding the number and percentage of shares of VHSN's common stock beneficially owned or deemed to be owned by the officers and directors of VHSN, individually and as a group based on 19,560,268 common shares outstanding on March 31, 2001. VHSN believes that the individuals listed below have the sole power to vote and dispose of the number of shares set forth opposite their respective names unless otherwise indicated. No preferred shares are outstanding as of the date hereof.
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Title of Class Name and Address of Beneficial Amount and Nature of Percentage
Owner Beneficial Owner of Class
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Elwin D. 9,270,000(1) 47.3%
Common Cathcart
1400 Dixie Road
Mississauga, Ontario L5E 3E1
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Common Gang Chai 1,048,502(2) 5.3%
89 Drewry Avenue
Toronto, Ontario M2M 1E1
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Common David 685,000(3) 3.5%
Smelsky
RR#4 Rockwood, Ontario
Canada N0B 2K0
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Common Thomas 500,000(4) 2.5%
Roberts
P.O. Box 128
Fayette AL 35555
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Common All officers and directors as 11,503,502 58.8%
a Group (4 individuals)
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(1) Consists of 7,900,000 common shares owned by Groupmark Canada Limited which is a wholly owned corporation of Elwin D. Cathcart; 370,000 common shares held directly by Elwin D. Cathcart and options to purchase 1,000,000 common shares granted to Elwin D. Cathcart (750,000 options at an exercise price of $0.40 expiring December 31, 2002 and 250,000 options at an exercise price of $0.35 expiring December 31, 2001). (2) Consists of 350,000 common shares and conversion privileges of Class B Special Shares of China eMall Corporation, into 698,502 common shares. VHSN acquired China eMall Corporation pursuant to a share exchange agreement wherein the shareholders of China eMall including, Dr. Chai, received Class B Special Shares of China eMall Corporation that are exchangeable on a one for one basis into common shares of VHSN. (3) Consists of options to purchase 500,000 common shares (250,000 options at an exercise price of $0.40 expiring December 31, 2002 and 250,000 options at an exercise price of $0.35 expiring December 31, 2001) and 185,000 common shares. (4) Consists of options to purchase 500,000 common shares (250,000 options at an exercise price of $0.40 expiring December 31, 2002 and 250,000 options at an exercise price of $0.35 expiring December 31, 2001).
Shareholders Owning Over 5%
The following table sets forth certain information regarding the number and percentage of shares of VHSN's common stock owned or deemed to be owned by any person known by VHSN to be the beneficial owner of more than five percent of VHSN's common shares based upon 19,560,268 common shares outstanding on March 31, 2001. VHSN believes that the individuals listed below have the sole power to vote and dispose of the number of shares set forth opposite their respective names.
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Amount and Nature Percentage
Shares Name and Address of Beneficial Owner of Beneficial Owner of Class
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Common Elwin D. 9,270,000(1) 47.3%
Cathcart
1400 Dixie Road
Mississauga, Ontario
Canada L5E 3E1
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Common Rogue-Mountain Corp. 1,259,993 6.4%
(8) 13065 Riverdale
Drive NW Coon Rapids, MN
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Common Forte Management Corp. (9) 1,500,000(2) 7.6%
Buckingham Square, Penthouse
West Bay Road, SMB
P.O. Box 1159GT
West Bay Road, SMB
Grand Cayman, Cayman Islands, BWI
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Common Charles He 1,274,000(3) (10) 6.5%
56 Temperance Street, Suite 501
Toronto, Ontario
Canada, M5H 3V5
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Common Gang Chai 1,048,502(4) (10) 5.4%
89 Drewry Avenue
Toronto, Ontario
Canada M2M 1E1
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Common Qin Lu Chai 1,048,498(5) (10) 5.3%
89 Drewry Avenue
Toronto, Ontario
Canada M2M 1E1
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Common Qing Wang 1,022,000(6) (10) 5.2%
18 Hollywood Ave.
Suite 900
North York, Toronto
Canada M4P 2B1
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Common Tai Xue Shi 1,022,000(7) (10) 5.2%
18 Hollywood Ave.
Suite 900
North York, Toronto
Canada M4P 2B1
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(1) Consists of 7,900,000 common shares owned by Groupmark Canada Limited which is a wholly owned corporation of Elwin D. Cathcart, 370,000 issued and outstanding common shares held by Elwin D. Cathcart and options to purchase 1,000,000 shares granted to Elwin D. Cathcart (750,000 options at an exercise price of $0.40 expiring December 31, 2002 and 250,000 options at an exercise price of $0.35 expiring December 31, 2001). (2) Consists of 1,500,000 issued and outstanding common shares. (3) Consists of conversion privileges of 1,274,000 Class B Special Shares of China eMall Corporation exchangeable into 1,274,000 common shares of VHSN. (4) Consists of conversion privileges of 698,502 Class B Special Shares of China eMall Corporation exchangeable into 698,502 common shares of VHSN and 350,000 common shares of VHSN. (5) Consists of conversion privileges of 698,498 Class B Special Shares of China eMall Corporation exchangeable into 698,498 common shares of VHSN and 350,000 common shares of VHSN. (6) Consists of conversion privileges of 672,000 Class B Special Shares of China eMall Corporation exchangeable into 672,000 common shares of VHSN and 350,000 common shares of VHSN. (7) Consists of conversion privileges of 672,000 Class B Special Shares of China eMall Corporation exchangeable into 672,000 common shares of VHSN and 350,000 common. (8) The principal beneficial owner of Rogue-Mountain Corp. is David Sorensen. The transfer agent for VHSN shows Rogue-Mountain Corp. as the registered owner of 1,259,993 common shares however VHSN has been informed by Rogue-Mountain Corp. that it is only the beneficial owner of approximately 50,000 common shares. (9) The principal beneficial owners of Forte Management Corp. are Leif Bristow of Toronto, Ontario and Alexander Bristow of Bali. (10) VHSN acquired China eMall Corporation pursuant to a share exchange agreement wherein the shareholders of China eMall received Class B Special Shares of China eMall that are exchangeable on a one-for-one basis into common shares of VHSN for no further consideration. |
